Day: August 2, 2017

One of the basics that real estate brokers teach new agents is that they need to get signatures on contracts. They also want to be sure that they get all the signatures needed, which is not always clear. A recent case provides a case in point.

A licensed real estate broker, signed a listing agreement with a homeowner the broker the exclusive and irrevocable right to sell a parcel of property. The duration of the contract was one year. The listing price was $2,200,000. If the broker procured a buyer for the property, she was to receive a commission of $200,000.

A lawyer signed as trustee of the the homeowner trust. There were signature lines naming four other persons plus one corporate entity. They were not signed. The broker said that the lawyer told her when he was signing the agreement that he was authorized to act on behalf of the other owners. She believed that there was a written agency agreement between the homeowner and the other owners. (In the listing agreement, the owner is identified as ‘John Smith the homeowner, Trustee of the the homeowner Trust, et al.’) Moreover, The Broker says that two of the individual owners subsequently acknowledged her employment, were impressed by her performance, and inquired about working with her on other projects.

The listing experience was not a happy one. Not long into the listing period, the broker contacted the homeowner to tell him that she had been in contact with a representative for the Trust for Public Land (TPL) and that TPL was interested in purchasing the property. the homeowner told the broker that he had been speaking with TPL for years, and that it should be excluded from the listing. The TPL representative denied this. In any event, sometime in 2013 the owners and TPL entered into a purchase agreement. The sale, however, was never consummated.

On April 4, 2014, the broker filed an action against the owners. (The Appellate Court noted that the failure of the sale was not addressed as a cause for the broker not to receive a commission. Hence that issue is not discussed.) The action was for breach of contract and for specific performance, among other charges.

The owners filed a demurrer – essentially, a motion to dismiss – on the grounds that they had not signed the listing agreement. The trial court sustained that motion. The broker appealed.

In short, it says that a contract to sell real estate for compensation [a listing agreement] is not valid unless it is signed by the person or persons (or his/their agent) who is to pay that commission. When the owners claimed they were not responsible for any commission, they were relying on the Statute of Frauds.

But the broker also relied on another argument, namely, that the homeowner told her he was authorized to sign for the others. Here, the owners asserted what is known as the equal dignities rule. That rule, the Appellate Court said, “is embodied in section 2309 of the Civil Code and reads as follows: An oral authorization is sufficient for any purpose, except that an authority to enter into a contract required by law to be in writing can only be given by an instrument in writing…”

If the homeowner had authorization to sign a listing agreement on behalf of the other owners, he would have been given authorization to sign something that was required to be in writing. According to the equal dignities rule, then, that authorization would also have to be in writing.

When the Appellate Court reviewed this case, they seemed to find too many anomalies in the circumstances to allow the case simply to be dismissed. For example, they felt that the broker should be given an opportunity to introduce extrinsic evidence regarding the homeownerâs claim that he was authorized to act for the other owners. So, the case was sent back, and we donât know at this point how it will turn out. But we do know that a lot of grief and lawyer fees could have been saved if there had been a concerted effort to obtain all signatures in the manner necessary.

Indeed, there may be a lesson here for real estate agents who have come to rely on the relatively new document entitled Representative Capacity Signature Disclosure. This is used when one person is signing for an entity such as a trust, or LLC, or partnership. It just might be a good idea to obtain a signed copy of the document that authorizes the person to act in such a capacity.